Payments Industry

Lord Sassoon: The Government are today publishing a consultation which invites views on options for reforming the regulation and governance of payments networks in the UK.
	The payments industry is central to the functioning of the economy and touches consumers and industry alike. However, it has not always been responsive to the needs of all users. In 2009, the Payments Council, the strategy setting body for the payments industry in the UK, took a decision that cheques would be phased out by banks and building societies from 2018. This decision caused considerable anxiety for many people in the UK, particularly those who were elderly, housebound or relied on cheques to conduct their day to day business, a point made by the Financial Secretary to the Treasury in a letter to the Treasury Select Committee (TSC). The subsequent investigation by the TSC found that the Payments Council was dominated by the banks and other payments industry members with the result that other users were entitled to be suspicious of its motives when proposing measures that were in the financial interest of its members. For example, the dominance of the big banks might create difficulties for smaller players, and barriers to entry, innovation and effective competition.
	Following pressure from the TSC and the Government, the Payments Council reversed its decision to abolish cheques in July 2011. However, in the light of the TSC findings, the Government accepted the case for bringing the Payments Council within the scope of financial regulation and proposed developing a number of options for potential reforms. This consultation is the result of that commitment.
	The Government believe that the UK payments industry needs to meet the current and future needs of consumers, businesses, other users and the wider economy without imposing disproportionate regulatory costs on businesses. This means having:
	UK payments networks that operate for the benefit of all users including consumers;UK payments networks that facilitate competition by permitting open access to participants or potential participants on reasonable commercial terms; a UK payments industry that promotes and develops new and existing payment networks; and UK payments systems that are stable, reliable and efficient.
	The Government have proposed two options to meet this agenda.
	The first option builds on the current system of self-regulation within the UK payments strategy setting functions. It sets out a series of proposed changes to the way the Payments Council is organised. These changes complement the reforms already underway within the Payments Council and would make that body more responsive to end users, including consumers. This option would not increase the regulatory burden on industry but would not bring any increased regulatory oversight to the payments industry in the UK.
	The second option proposes creating a Payments Strategy Board, to monitor, report on and make public recommendations to the payments industry. It would be run by a mixture of senior industry and non-industry representatives and independent directors and be overseen by the new Financial Conduct Authority. This approach brings payments strategy, but not the Payments Council itself, into regulation, with a limited increase in the regulatory burden.
	The Government believe that this option strikes a good balance between ensuring that the Payments Strategy Board represents the payments industry, balanced by appropriate consumer groups and independent directors, and that its recommendations are public, bringing increased transparency and accountability. The Payments Strategy Board would ensure competition concerns and consumer views are fully considered when payments strategy is being formulated, and meet the Government's aims at relatively low cost to the industry. At this stage of the consultation process, this is the Government's preferred option.
	Finally, a third approach would be to create a new regulator for the payments industry on a similar model to those in other regulated sectors such as gas, electricity and water. This option would considerably increase the regulatory, and financial burden on industry and would take time to design and implement in a way that integrates with, and does not conflict with, the roles of existing regulators. Given these considerations, the Government have not considered this approach in detail but if consultation responses demonstrate that the marginal benefits would outweigh the costs relative to option two, the Government will give it further consideration.
	The Government are inviting views in response to the consultation document by Wednesday 10 October.